In California Chamber of Commerce, et al., v. State Air Resources Board, et al. (2017) 10 Cal.App.5th 604, the Third Appellate District affirmed the trial court and rejected challenges to a cap-and-trade program developed by the State Air Resources Board (“CARB”) under the California Global Warming Solutions Act of 2006 (“AB 32”).
The program imposes
On July 17, 2017 the California legislature approved an extension of the state’s greenhouse gas cap-and-trade program from 2020 to 2030. Cap-and-trade is a key program in the state’s efforts to meets its 2030 greenhouse gas reduction goals of 40% below 1990 levels covering emissions from industrial facilities and electricity and natural gas suppliers.
Governor Brown and legislative leaders have worked for several months on a package of bills that could achieve a 2/3 majority in the legislature, insulating the cap-and-trade program from additional challenges under Proposition 13 and providing the state with considerable discretion in spending revenues generated by the program. This grand bargain includes a cap on the price of emission allowances sold under the program, measures to reduce emissions of non-greenhouse gas pollutants from industrial facilities and refineries, an increase in maximum penalty for violations of state air rules, and tax credits for energy producers. In extending cap-and-trade, the legislation also blocks an effort by the Bay Area Air Quality Management District (“BAAQMD”) to cap greenhouse gas emissions from Bay Area refineries.
In recent weeks, California appellate courts issued two decisions regarding California Air Resources Board (CARB) programs implemented under AB32, the Global Warming Solutions Act, with mixed results. The first decision upheld the legality of a key element of CARB’s cap-and-trade program, the auction of emission credits. In that case, the Third Appellate District rejected an industry challenge and found that the auctions are within the authority granted to CARB by AB32 and are not an illegal tax. In the second case, the Fifth Appellate District delivered a setback—the second in that court—for CARB’s Low Carbon Fuel Standard (LCFS), finding the agency failed under the California Environmental Quality Act (CEQA) to adequately analyze the potential effects of NOx emissions resulting from the increased use of biofuels mandated by the LCFS. CARB was first ordered by the court to correct this CEQA violation in a 2013 writ of mandate, but the agency failed to do so in its 2015 re-adoption of the LCFS. The court, noting the environmental benefits of this program, however, did not invalidate the LCFS and only froze the required standards at 2017 levels until CARB corrects the CEQA deficiencies. These decisions do little to clarify the muddy waters around how agencies should analyze greenhouse gas emissions under CEQA, as that analysis is inextricably intertwined with the effectiveness of the State’s greenhouse gas regulatory programs.